Major foreign investment banks have downgraded their targets and ratings on South Korea’s benchmark Kospi, which has faced market volatility stemming from mounting inflationary pressure and the protracted war between the Russia and Ukraine.

Japanese firm Nomura Securities lowered its investment rating on the Korean market from “overweight” to “neutral” last week, suggesting investors hold, not buy, stocks.

Nomura cited the recent slowdown in China’s economic expansion, growing exposure to global stock market volatilities and lingering political risks after the presidential election held here in March behind his decision to adjust their rating. The current global semiconductor crisis is likely to affect the local industry and ultimately its future performance, the brokerage added.

He made no projection on Kospi’s targets and raised the investment ratings of China and Indonesia to “overweight”.

JP Morgan cut Kospi’s target from an earlier estimate of 3,300 to 3,000, citing high inflation. He explained that the US Federal Reserve’s shift towards hawkish policy, strong inflationary pressure across all sectors and the weakening Korean Won led to the latest downgrade.

Others, like Goldman Sachs and Macquarie Securities, each cut Kospi’s target from 3,350 to 3,050 and 3,200 to 2,800, respectively, early last month.

Goldman Sachs underlined the high vulnerability of the Korean market in the face of sluggish global economic growth, while saying that the Kospi will continue to experience a slide, despite a brief rebound in the near future.

The major investment bank‘s Kospi market downgrade comes as retail investors dump stocks amid the market turning bearish.

Retail investor deposits for equity investments fell some 20 trillion won ($15.9 billion) year on year to 57.5 trillion won as of Tuesday, according to data from the Korea Financial Investment Association. Equity investment deposits refer to investors’ cash entrusted to brokerage firms, primarily for future equity investments.

Total deposits nearly tripled from 27.3 trillion won at the end of 2019 to 65.5 trillion won at the end of 2020, thanks to increased liquidity following the outbreak of the COVID-19 pandemic here. in early 2020. Investors had flocked to banks and other financial institutions to borrow money at a record interest rate, which the Bank of Korea had maintained from May 2020 to August 2021.

Now that the BOK has raised its benchmark interest rate to 1.75% and average daily trading in the Kospi and secondary Kosdaq has slowed from 20.6 trillion won in January to 16.8 trillion won the last month, analysts believe that the “pandemic rally” will be over.

“The retail investor buying frenzy, which has been at the center of the pandemic recovery, has now waned,” said Choi Yoo-june, an analyst at Shinhan Investment.

“The stock market has been hit by recent rate hikes and now we are seeing a slowdown in stock trading coupled with a drop in deposits from retail investors,” he added.

Hit by waves of change, the market capitalization of 23 Samsung Group stocks – including Samsung Electronics – listed on both Kospi and Kosdaq fell 87.8 trillion won on Friday, compared with Dec. 30 last year. . Market capitalization stood at 641.9 trillion won on Friday, down from 729.8 trillion won on Dec. 30.

Shares of market kingpin Samsung Electronics – which accounts for about 20% of Kospi’s total market capitalization – fell 14.7% to 66,800 won from 78,300 won in December.

Korea’s inflation topped 5% year-on-year last month on the back of a lingering global supply problem and rapid domestic demand growth amid post-pandemic normalization, data showed. Statistics Korea on Friday. Consumer prices rose 5.4% in May from a year earlier. This posted the highest figure in more than 13 years, dating back to August 2008 when a price growth of 5.6% was reported.

By Jung Min-kyung ([email protected])